What Is Pakistan's Fiscal Deficit in 2026-27?
The gap between spending and revenue, and the target behind it
By the ISN Media desk • June 2026 • Approx. 5-min read
This is a short, factual answer about Pakistan's fiscal deficit in the 2026-27 budget. The figures are Budget Estimates from the Government of Pakistan, in billions of rupees. For the wider analysis, see the debt trap and the primary surplus.
What is Pakistan's fiscal deficit in 2026-27?
Pakistan's overall fiscal deficit is targeted at about 3.6 percent of gross domestic product in 2026-27, down from 3.9 percent the previous year, while the federal budget deficit is about Rs 7,020 billion. A fiscal deficit is the gap between what the government spends and what it raises in revenue, and it is filled by borrowing. The deficit exists almost entirely because of the cost of interest on past debt, not because of day-to-day overspending.
The two deficit figures
There are two figures, which can confuse. The federal budget deficit, about Rs 7,020 billion, is the centre's own gap. The overall, or consolidated, fiscal deficit, about 3.6 percent of GDP, also takes account of the provincial balances, since the provinces typically run surpluses. The headline figure quoted in most coverage is the overall deficit as a share of the economy.
Why the deficit exists
The key to understanding Pakistan's deficit is that it is driven by interest. Before counting interest, the government actually takes in more than it spends, a position called a primary surplus, of about Rs 2,828 billion. The deficit appears only when the interest bill of about Rs 8,054 billion is added. So the gap is the cost of servicing old debt, not current overspending, as explained in what is a primary surplus.
How the deficit is financed
The deficit is financed by borrowing, increasingly from domestic banks. Planned bank borrowing rose to about Rs 4,012 billion in 2026-27, roughly double the previous year. The government also borrows externally and from non-bank domestic sources, but the heavy reliance on bank borrowing is what links the deficit to interest rates and to credit for the private sector.
Frequently asked questions
What is Pakistan's fiscal deficit in 2026-27? The overall fiscal deficit is targeted at about 3.6 percent of GDP, down from 3.9 percent, and the federal deficit is about Rs 7,020 billion. It is filled by borrowing.
What is the difference between the federal and overall deficit? The federal deficit, about Rs 7,020 billion, is the centre's own gap. The overall, or consolidated, deficit, about 3.6 percent of GDP, also accounts for provincial balances, which are usually in surplus.
Why does Pakistan have a deficit? Almost entirely because of interest on past debt. Before interest, the government runs a primary surplus, so the deficit is the cost of servicing old debt rather than current overspending.
Is the deficit improving? Modestly. The overall deficit eased to about 3.6 percent of GDP from 3.9 percent, but the improvement is small and depends partly on the assumption that interest rates will ease.
How is the deficit financed? By borrowing, increasingly from domestic banks. Planned bank borrowing rose to about Rs 4,012 billion, with additional external and non-bank domestic borrowing.
What is a primary surplus? The budget balance before interest is counted. Pakistan's is about Rs 2,828 billion, which shows the day-to-day budget is disciplined even though the overall budget is in deficit.
Why does the deficit improve so slowly? Because it is driven by interest on debt already owed, which cannot be cut in a single budget. The deficit narrows only as interest rates ease, the primary surplus grows, or the economy grows faster than the debt, all slow processes.
Is a deficit of 3.6 percent of GDP high? It is moderate by international standards, but the concern in Pakistan's case is that it is sustained by heavy borrowing at high interest rates, which keeps the debt and its servicing cost rising.
Sources and notes
- Government of Pakistan, Federal Budget 2026-27: deficit and balance figures are Budget Estimates in billions of rupees, except the deficit ratio. Rounded for readability.
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